Georgetown University's credit rating was knocked down this week to a level considered unusually low for a school of its national prominence, as Wall Street analysts raised concerns about the lingering deficits created by its struggling medical center.
Analysts for Standard and Poor's lowered its rating on Georgetown's outstanding bonds issued through the District of Columbia from A- to BBB+ after determining the university does not have an unrestricted cushion of cash large enough to see it through a major emergency.
Yet despite serious concerns about the school's financial picture, Standard and Poor's also proclaimed the new rating as "stable," citing Georgetown's intent to boost fundraising and rein in spending -- including a recent round of layoffs -- while still managing to attract some of the top students in the country.
"We think over the long term, the university will be able to meet its financial plan," said Mary Peloquin-Dodd, a Standard and Poor's director. Now, she added, "they need to cut corners while continuing to compete."
University officials said the lowered rating should not hurt campus operations. The rating affects only the terms under which the school would float bonds to borrow money for major new projects, and Georgetown currently does not have any such plans, officials said.
Yet the rating does reflect the financial difficulties that have continued to wrack the 215-year-old Jesuit institution over the past decade. Like many Catholic colleges, Georgetown came late to the private fundraising game, and its endowment of roughly $600 million remains small for a school of its size and prestige.
Georgetown also struggled for years under the multimillion-dollar losses of its medical center, forcing it to sell a controlling interest in its hospital to MedStar in 2000.
Despite the sale, the research arm of the medical center has remained a drag on the rest of the university, attracting fewer gifts and grants than hoped for and driving up Georgetown's deficit from $20 million last year to as much as $28 million this year, school officials said.
Those losses have prompted a major new round of cost-cutting in the medical center, said Christopher L. Augostini, Georgetown's treasurer and chief financial officer. In the spring, the center eliminated roughly 65 positions -- some through vacancies and others through layoffs -- attached to projects that were not reaping enough revenue. More job cuts are likely to come as the center undergoes a restructuring, he said.
Augostini said the university was surprised and disappointed by Standard and Poor's downgrade, which he said seemed to be based on Georgetown's past decade of struggles rather than its likely financial future.
He noted that Moody's Investor Service, another credit-rating agency, removed Georgetown from a "watch list" recently, after seeing its new long-term financial plan, under which the school would erase its deficit by 2007. Moody's, though, had issued a minor downgrade of Georgetown's bond rating in June 2003.
Peloquin-Dodd noted that Standard and Poor's had kept Georgetown's rating relatively high in the troubled years before it could unload the hospital. "Our concern was that now, three and four years later, they still have an operating deficit," she said.
Even with its A- rating, Georgetown is well below the schools considered its peers. Duke and Cornell universities are five grades above it, with AA+ ratings, and such universities as Harvard, Princeton and Amherst have AAA ratings. Among the District's other private institutions, American, Catholic and George Washington universities carry A ratings, and Howard University has an A+.
The only school near Georgetown's level of prominence to rate as low as BBB+ is Boston University, which Peloquin-Dodd said earned the rating by going deeply in debt.
Georgetown's level of debt does not raise concerns, though -- "just their low level of financial resources," she said.
